The Ontario government just announced a pilot project to test a basic income for low-income earners in Hamilton, Brantford, Lindsay and Thunder Bay. Participants will need to apply, and once accepted into the program they will be guaranteed an income of just under $17,000 a year, less 50 per cent of any income earned. Couples will earn around $24,000, less 50 per cent of earned household income.
Will the program be successful? I have no idea.
The answer will, in large part, depend on what will be measured. Proponents of basic income look beyond the primary goal of poverty reduction, listing many other benefits such as potentially higher education achievements, a reduction in government medical and mental health costs, and lower crime rates.
The average insolvent debtor today is struggling to make ends meet on a significantly lower than average income, and is using debt to keep up.
Those are worthy objectives, but I would also like to see the government track the impact of a basic income on household debt and personal bankruptcy.
A recent bankruptcy study by our firm, Hoyes Michalos, found that two-thirds of those who file insolvency in Ontario have an income in the bottom quartile of household earners. Income loss is a primary cause in 55 per cent of all insolvencies. The average insolvent debtor today is struggling to make ends meet on a significantly lower than average income, and is using debt to keep up.
Will a basic income help alleviate, or worsen, these bankruptcy numbers? I don't know, which is why I would like to see this pilot project specifically track the impact of a basic income on household debt and personal insolvency.
In addition to the metrics that will be tracked, I have two other concerns with this basic income pilot project as communicated by the government.
First, a pure basic income is a basic income given to everyone in the general population. I'm concerned that the government's proposal is based on an application process, so presumably recipients chosen for the test will already have low incomes. While I don't specifically object to this approach, this type of implementation will not address, and as such won't measure the impact on, a sudden reduction in income due to a job loss or illness. So, this really isn't a guaranteed basic income, it's a new form of income supplement. This will not help the average hard working Ontarian who finds themselves turning to debt to make ends meet because of a temporary or permanent change in their financial situation.
Will a Basic Income Increase Payday Loan Borrowing?
My second concern involves whether or not we will see an increase in the use of sub-prime debt options, like payday loans. Is it possible that people whose income today is too low to qualify for a loan (perhaps because they have no income) will now qualify for a high interest loan due to their increased income because of their basic income payments?
I don't know, but I can tell you that payday lenders love stable income. For example, pension income is stable, so pensioners can qualify for payday loans, and as a result, more than one in ten seniors who file insolvency owe money on at least one payday loan. Worse, they have the highest payday loan debt of any age group. Payday lenders may see the same opportunity among those now earning a stable basic income.
Will a guaranteed income increase access to debt for those participating in the program? And if so, will their income be sufficient to be able to repay that debt? If the payday loan industry finds them to be new and attractive borrowers, they may find themselves worse off. If so the result will be more bankruptcies in Ontario, not less.
So, what's my take on a basic income? There is no doubt that low and sporadic incomes contribute to personal bankruptcy rates, so a basic income may alleviate the problem of insufficient income. However, the success of the program will depend on how it is implemented and measured, so I will await the results of this test to see if a basic income has the potential to be a solution to the income problems of many residents of Ontario.
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